What will it cost you to delay your retirement savings for 3 years? Maybe you want to wait a few years while you pay down debt, save for a house, have a family, save for your kids college, etc. Whatever the reason might be we can always come up with some excuse to put off your retirement savings. In fact, it is probably easier to delay your retirement savings because you see no immediate benefit of it. All the things I mentioned have an upside that you will see the difference of before your retirement. We all like to see the sugars of our labor.
There’s a psychology involved as well. Just like every, healthy well-adjusted human being, we believe we are going to live a long, healthy life. By thinking this it gives you a real sense of having plenty of time to save for retirement. We can do that tomorrow. I’ll start tomorrow. There’s plenty of time for that. Have you heard yourself say any of these things? It’s normal to feel this way.
Maybe you feel the opposite. There might not be a tomorrow. Life is short. Why would you save for retirement with that mentality? It might never come. This is completely reasonable as well. It’s normal to feel as though you want to live your live. Carpe Diem.
So how are you ever suppose to save for retirement? I don’t know I’m not a psychologist. People are living longer today than ever. “The oldest old are projected to be the fastest growing part of the elderly population into the next century.” (Population Profile of The US) This means we’re spending more time in retirement than ever. It’s becoming more and more common to spend 30 years in retirement or you work longer. I know my goal is to have the choice of whether I want to work longer not have to do it because of money. I don’t want money to rule my life.
Here’s a graph of what it would look like to save for retirement, you max out your Roth IRA. You save $5,000 the first year and index that for inflation (I used 3%) for every year for 40 years. You get a 6% rate of return on your money over that time. Then you end up with about $1.24 million. That’s not too shabby. You are now a millionaire.
We started with 3 years right? So if you miss the first 3 years then you actually are losing the 3 years off the end. Think about it. That’s 3 less years your money can compound. That’s 3 less years you have with your good ole friend compound interest. You’re destroying your compound interest. So where would the 3 less years leave you? It will leave you with just under $1 million. That’s 20% less money. Those 3 less years cost you 20% of your retirement. Those first 3 years aren’t about putting aside $5,000 a year it’s about saving $250,000. Is that worth it?